Wealth Planning for Same-Sex Married Couples: A Checklist

Key Takeaways:

• The Obergefell ruling by The Supreme Court legalized same-sex marriage in all 50 states.

• Same-sex married couples are now eligible for many benefits previously unavailable.
• These benefits include marital deductions, combined tax filings, government benefits and more.

Same-sex couples are now eligible for the many benefits afforded to married couples. With these new options, it is important for couples to understand how these changes will impact their existing plans.

In 2013, the Supreme Court ruled the federal law, which defined marriage as between a man and a woman, unconstitutional. This decision opened the door for federal recognition of same-sex marriage. Further, the Supreme Court ruled in Obergefell that same-sex marriage is legal in all 50 states. The Supreme Court held that the right to marry is a fundamental right. As a result, under the 14th Amendment “couples of the same sex may not be deprived of that right and that liberty,” meaning states cannot keep same-sex couples from marrying and must recognize the legal status of their marriages. Federal recognition means that same-sex married couples are now entitled to certain federal benefits. In the checklist below, we outline key wealth planning considerations for same-sex married couples. As you plan your wealth management approach, or meet with an advisor, consider these items:

Estate Planning

Many estate planning rules are impacted by marital status. Some rules kick in automatically due to marital status, while other require action on your part. Work with an advisor to maximize deductions and determine if a trust is the right structure for your estate.

Know:

• If a spouse dies without a will, the surviving spouse is eligible to receive the deceased spouse’s intestate share.
• Spouses receive priority if a conservator or guardian needs to be appointed for their spouse.
• Same-sex couples living in community property states will receive a full step up in basis on their community property assets when a spouse dies. Same-sex couples in separate property states will be subject to the special basis rules for jointly-owned property.
• Creditor protection is offered to married couples for jointly owned property, such as real estate titled as tenancy by the entirety.1

Consider Action:

• Couples are eligible for the marital deduction for both gift and estate taxes, as well as portability of estate tax exemptions.
• Gift splitting is now available for federal gift tax purposes.
• Same-sex married spouses are eligible to create life estate trusts that are restricted to married couples, including QTIP trusts and QDOT trusts, as well as the ability to make a reverse QTIP election for Generation Skipping Transfer tax purposes.2 3

Income Tax

Similarly, income tax provisions differ based on marital status. For example, one important change for same-sex married couples includes the provision that a jobless spouse may now contribute to an IRA. Further, couples are required to file their income tax returns as married (either jointly or separately) under federal and state law. This can be beneficial or detrimental depending on the situation:

• If one spouse is the primary earner, their combined bracket may be lower than the bracket of the primary earner if they were single.
• The reverse is also possible, the higher earner may pull the lower earner into a higher bracket resulting in a larger tax obligation
• Larger joint income provides couples with the ability to utilize a larger charitable deduction.
• Conversely, joint income may cause a higher AGI threshold for certain deductions.

Filing income taxes as a married couple can have significant impacts on your tax burden. Work with an accountant or advisor to determine the best course  of action.

Government Benefits

Social Security, Medicaid and Supplemental Security Income, Medicare, bankruptcy filings, and benefits under the Family Medical Leave Act are impacted by the ruling as follows:

• Same-sex married couples may be eligible to receive Social Security, Medicare, and disability benefits based on their spouse’s work history.
• Same-sex married couples are eligible to receive veterans and military benefits for spouses, such as those for education, medical care, or special loans.

Employee Benefits

It is important to take employee benefits into consideration for married couples. Employer-sponsored benefits programs often offer significant discounts for health, retirement, and other plans. They also include leaves of absence. Make sure to update your employee profile with any marital changes to take advantage of the benefits below.

Don’t leave valuable government and employee benefits on the table.

Same-sex married couples can:

• “Benefit shop” between their employers depending on the employer.
• Take bereavement leave if their spouse or a spouse’s close relative passes away as allowed by their employer.
• Receive wages, workers’ compensation, and retirement plan benefits for a deceased spouse depending on the type of retirement plan.
• If employed by the federal government with a benefit that is tied to marital status, the employee is entitled to receive items, including health insurance for spouses, workers’ compensation, health, insurance, and retirement plan benefits.

Conclusion

In conclusion, the Obergefell ruling ushered in a new era of legal recognition and benefits for same-sex couples, leading to considerable changes in estate planning, income tax, government benefits, and employee benefits. It's critical that same-sex married couples understand and act on the wide array of financial and legal benefits now available to them.

At Comerica, we're committed to helping you navigate these changes and make informed decisions that best suit your needs. Your journey is our journey, and we're here to support you every step of the way. Contact your Comerica Relationship Manager or request to speak with a Comerica professional today.

1Estate planning for same-sex couples after Obergefell v. Hodges. (n.d.). https://info.wealthcounsel.com/blog/estate-planning-for-same-sex-couples-after-obergefell-v.-hodges

2Kaufman, L.K., Walker L.L.P, J. 2016. Wills, Probate and Estate Planning (and Thoughts on Marriage) for Same-Sex Couples In Light of Windsor and Obergefell .Estate Planning Council of Central Texas. https://www.epcct.org/assets/Councils/CentralTexas-TX/library/1516657_4_SPEECH%20_%20G_L%20Basic%20Estate%20Planning%20(2).pdf
3Randolph, M., JD. (2016). QTIP Trusts. www.nolo.com. https://www.nolo.com/legal-encyclopedia/qtip-trusts.html